Jones v Matrix Partners Pty Ltd

Introduction 1 The first plaintiff (liquidator) is the liquidator of the second plaintiff, Better Spaces Design Pty Ltd (Company). 2 By originating process dated 28 April 2023, the liquidator applied to be appointed without security as the receiver and manager (receiver) of the property, undertakings and assets of the Better Spaces Design Unit Trust (Trust) pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (Act), and for ancillary orders. 3 On 1 June 2023, I made orders in the form of the orders sought by the liquidator. These are my reasons for making those orders.

Background 4 The liquidator relied on the following materials in support of his application: (a) an affidavit of the liquidator sworn on 28 April 2023, which deposed to the background to the application; (b) an affidavit of Ashleigh Jones affirmed on 31 May 2023, which deposed to service of the proceeding on the Australian Taxation Office (ATO) and the Australian Securities & Investment Commission (ASIC) on 8 May 2023; (c) an affidavit of Hayley Warren affirmed on 31 May 2023, which deposed to service of the proceeding on Mitchell Jones, Cara Stizza, Judo Bank Pty Ltd, Secure Funding Pty Ltd, Volkswagen Financial Services Australia Pty Ltd, and David Anthony; and (d) an affidavit of Ms Warren affirmed 1 June 2023, which annexed correspondence with Mr Jones and Ms Stizza about the proceeding. In this affidavit, Ms Warren further deposed that she had not been informed by any interested parties that they intended to appear at the hearing. 5 As deposed to in the liquidator's affidavit, the Company was incorporated on 18 May 2016. 6 On 21 March 2023, the liquidator was appointed liquidator of the Company by a members' voluntary liquidation resolution pursuant to s 491 of the Corporations Act 2001 (Cth) (Corporations Act). 7 The Company is the corporate trustee of the Trust, which was established on the same day as the Company. At the time of the liquidator's appointment, Mr Jones was the sole director, secretary and shareholder of the Company. The Trust is a unit trust with three unitholders - Mr Jones, Ms Stizza and Mr Anthony. 8 Upon the liquidator's appointment, the Company was removed as trustee of the Trust by operation of cl 12.5(b) of the Trust Deed, which provided: "The office of a Trustee shall be ipso facto determined and vacated if … a Trustee being a company shall enter into liquidation, whether compulsory or voluntary (not being merely a voluntary liquidation for the purpose of amalgamation or reconstruction)". The liquidator deposed that he was not aware of any replacement trustee being appointed to the Trust. 9 Based on the liquidator's investigations, he deposed that the Company: (a) operated a business which provided design, architectural, interior and project management services specialising in commercial, residential and public projects (Business); (b) did not act in any other capacity other than trustee of the Trust; and (c) carried on the Business solely in its capacity as trustee of the Trust. 10 The liquidator deposed that the assets of the Trust were comprised of: (a) two Westpac bank accounts which held, in total $151,040.83, as at the date of the liquidator's appointment; and (b) general plant and equipment comprising office furniture, electronic goods and a car, which were together valued at $200,905 (excl GST) (Equipment and Vehicle). 11 The liquidator deposed that the funds in the Westpac account had been transferred into an account for the liquidation of the Company (Liquidation Account). As at 21 April 2023, $38,922.64 remained in that account. 12 As at 21 April 2023, the liquidator estimated that the Trust held assets in the vicinity of $239,827.64 to $176,817.64 pending the realisation of the Equipment and Vehicle. 13 The liquidator deposed that he had identified secured creditor claims totalling approximately $129,144, being owed to Volkswagen Financial Services Australia Pty Ltd. The liquidator also identified two further entities who hold security interests of the Company - Secure Funding Pty Ltd, which holds a purchase money security interest over a motor vehicle, and Judo Bank Pty Ltd, which holds a registered security interest over all present and after acquired property. The liquidator also deposed that he had identified an unsecured creditor claim by the ATO for $171,944.51 as at 18 April 2023. 14 The liquidator deposed that he sought to be appointed receiver over the Trust to allow for: (a) the advertisement of the Business; (b) the advertisement and sale of the Equipment and Vehicle; (c) a marketing campaign to be conducted for the sale of the Business; (d) the facilitation of payment to creditors; and (e) the distribution of any remaining assets to Unit Holders in accordance with their unit holding. 15 The liquidator deposed that he considered there are sufficient assets upon realisation of the Trust property to satisfy all creditors in full, and for a return to be available to the unit holders.

Hearing 16 The proceeding was listed for a first case management hearing on 2 June 2023. However, the liquidator's solicitors informed my chambers that the liquidator sought the making of final orders at the hearing. At the hearing, the only appearance entered was on behalf of the liquidator.

Relevant principles 17 Section 57 of the Act provides: (1) The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. (2) A receiver of any property appointed by the Court may, without the previous leave of the Court, be sued in respect of an act or transaction done or entered into by him or her in carrying on the business connected with the property. (3) When in any cause pending in the Court a receiver appointed by the Court is in possession of property, the receiver shall manage and deal with the property according to the requirements of the laws of the State or Territory in which the property is situated, in the same manner as that in which the owner or possessor of the property would be bound to do if in possession of the property. 18 The ground on which the Court appoints a receiver is the protection or preservation of property for the benefit of the persons who have an interest in it: Re Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 (Business Aptitude) at [17] (per Gleeson J). 19 A company that holds trust assets in circumstances where that company no longer acts as trustee holds those assets as bare trustee. In these circumstances, its powers are limited to protecting the trust assets: Re Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 at [27] (per McKerracher J). 20 Subject to the terms of the trust deed, a trustee has a right of indemnity against debts and liabilities incurred in performing its duties and powers out of the assets of the trust. Subject to the terms of the trust deed, this right is secured by a lien: Jones v Matrix Partners Pty Ltd (2018) 260 FCR 310 at [35] (per Allsop CJ) (Jones). A trustee does not require judicial intervention to exercise its right of indemnity where property is not required to be sold. However, the lien "does not confer a power of sale, and if sale be necessary a court order or the appointment of a receiver to sell is required": Jones at [44]. 21 The Court may appoint a receiver over trust property to secure a former trustee's right of indemnity out of the assets of the trust: Business Aptitude at [22]. This includes where it is necessary for a liquidator "to realise the assets of the trust so that the liabilities incurred by the [liquidator] in the performance of the trust can be met": Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15] (per Besanko J). In Re Simpkiss Pty Ltd (in liq) [2018] FCA 2121, Markovic J made orders appointing a liquidator of a corporate trustee as receiver of the assets and undertakings of a trust. Markovic J explained her reasons for doing so in the following terms (at [30]): Here, as noted above, the office of trustee of the Trust became vacant as a result of Ms Amirbeaggi's appointment as administrator. There was no suggestion that a new trustee would be appointed. It was thus necessary to appoint Ms Amirbeaggi as receiver and manager to permit her to further deal with any remaining Trust assets, bring certainty to the process of finalising the liquidation and secure Simpkiss' right of indemnity out of the assets of the Trust for the benefit of Simpkiss' (and the Trust's) creditors.

Consideration 22 The ordinary position is that potentially affected parties must be notified of a liquidator's application under s 57(1) of the Act: Re Brimson Pty Ltd (In Liq) [2019] FCA 1023 at [8]. I am satisfied that all known interested parties in this proceeding - that is the beneficiaries of the Trust and its creditors - have been served with the proceeding. ASIC has also been served with the proceeding pursuant to r 2.8 of the Federal Court (Corporations) Rules 2000 (Cth). 23 In the present case, the Company has been removed as trustee of the Trust by virtue of the liquidation, and there is no evidence that a replacement trustee has been appointed. The Company therefore holds the Trust property as bare trustee. As a bare trustee, the Company is not able to realise the Trust property. The liquidator's evidence was that the Trust property, once realised, will be sufficient to satisfy all creditors, and return a surplus to the unit holders. In these circumstances, I accept that it is just and convenient for the liquidator to be appointed as receiver of the trust property under s 57(1) of the Act to facilitate this. 24 The liquidator's evidence was that the Company only carried on business as trustee of the Trust, and that all property was characterized as property held by it as trustee and that all creditors were creditors of the Trust. Given this, I consider it is appropriate to make orders to the effect that the liquidator be paid his remuneration and expenses associated with his work out of the trust assets.

Disposition 25 For the above reasons, I have made orders, in summary, that: (1) Pursuant to s 57 of the Act, the liquidator be appointed receiver, without security, over the business and all present and after acquired property, rights and undertaking of the Trust including the proceeds of any such property. (2) The liquidator has the following powers in respect of the property of the Trust, namely: (a) the powers enunciated in s 420 of the Corporations Act, as if the references in that provision to 'property of the corporation' was a reference to 'property of the Trust'; and (b) the powers that a liquidator has in respect of property of a company pursuant to s 477(2) of the Corporations Act. (3) The need for the liquidator, as Receiver, to file a guarantee pursuant to rr 14.21 and 14.22 of the Federal Court Rules 2011 (Cth) be dispensed with. (4) The liquidator in his capacity as receiver of the property of the Trust and in his capacity as liquidator of the Company, may have recourse to: (a) the property of the Trust for his costs, expenses and remuneration in respect of work undertaken to render that property available to meet the claims of creditors whose debts were incurred by the Company as trustee of the Trust; and (b) the property of the Trust for his other costs, expenses and remuneration properly incurred in the winding up generally. (5) The liquidator has a lien over the property of the Trust in respect of the amounts to be paid to him under Order 4. (6) The costs of and incidental to the liquidator's originating process be costs and expenses in the winding up of the Company and be paid out of the assets of the Company. (7) There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge Orders 1 to 6 on not less than 48 hours' written notice to the liquidator. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson.